Many businesses, especially in the start-up phase, perceive that hiring independent contractor instead of employees can have many economic advantages, such as saving on unemployment and workers' compensation premiums and other payroll taxes, as well as benefits available only to employees such as overtime, health coverage, and insurance. However, misclassifying individuals working for the business as independent contracts can have detrimental consequences for the business.
Simply stated, an independent contractor is a person or business entity hired to provide a specific service or product, but not hired to work as an employee. This person or entity normally would contract with a business to perform a piece of work or provide a specific good according to his or her own methods and is subject to the contracting businesses control only as to the final result of his or her work or end product.
The distinction between employees and independent contractors has significance for the contracting businesses liability exposure arising from the actions of the individual or business entity employed, as well as liability for a range of employment benefits and expenses. Thus, it is of significant importance to a contracting business to make clear whether an individual is an independent contract or an employee so as to not misclassify the business relationship.
When a small business or start-up determines that it is in its benefit to use an independent contractor, our law firm may help analyze the relationship and work to implement a proper business relationship structure that will closely match the regulatory agencies' criteria for independent contractors.